Integrated methodology for estimating zero-coupon yield curves: Evidence from Turkish government nominal bonds

This study estimates the zero-coupon yield curves for Turkish government nominal bonds from February 2005 to June 2022 using the Nelson–Siegel–Svensson parametric model. We implement a weighting scheme in the objective function, where squared pricing errors are weighted by the inverse of the square root of the bond duration. This weighting scheme strikes a better balance between the short- and long-maturity bonds during the optimization process. Moreover, by employing four nonlinear optimization algorithms and three parameter initialization approaches, we aim to prevent premature convergence to local optima and improve the quality of fit. Our integrated methodology yields reasonably low in-sample root mean squared error values for price errors and offers clear guidance and a framework for researchers in constructing zero-coupon yield curves.